Until the confession, the Philippine government had steadfastly refused to call the explosion, on Feb. 27, a terrorist attack.
The US has bomb experts here who could determine the exact cause of the explosion, diplomats said, but the Philippine government has not allowed them.
Its "utter refusal to do anything" about the ferry attack was another reason for the warning, a Western diplomat said.
When the police arrested Limbong and the others they also seized nearly 180 pounds of TNT, leading Arroyo to say that "another Madrid" had been avoided.
In announcing the arrests and seizures, Arroyo incorrectly said that 80 pounds of explosives had been found, but it was 80kg, or about 176 pounds, said a Western official.
Diplomats and security officials said that in invoking the train bombings in Madrid, Spain, Arroyo engaged in a bit of election-time hyperbole. The presidential election is May 10. Still, they do not deny their concerns.
Jemaah Islamiyah, the Indonesian-based terrorist group, often seen as al-Qaeda's surrogate in the region, is continuing to operate camps in the southern Philippines, with another 40 recruits reported to have graduated in February, Western and Philippine officials said.